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Geographical diversification and Solvency II A proposal by Lloyd’s

Exclusion of geographical diversification from the standard formula Solvency II’s economic approach entails the recognition of diversification benefits in the setting of capital, as the Solvency II Directive explicitly recognises. An important form of insurer business diversification is geographical diversification. Nevertheless, CEIOPS has concluded in its advice to the European Commission that geographical diversification is too complex for inclusion in the standard formula’s non-life underwriting module. It considers that undertakings wishing to benefit from geographical diversification can use internal models instead of the standard formula. These conclusions are open to challenge on several grounds: • Impact on the standard formula: The standard formula is intended to be usable by

all insurance and reinsurance undertakings. Removal of geographical diversification makes the standard formula’s use by undertakings with significant international exposure uneconomic and means that the standard formula is moving away from an economic approach to capital setting.

• Credibility of Solvency II: The non-inclusion of geographical diversification in the standard formula and its inclusion in undertakings’ internal models will mean that there will be significant differences in levels of regulatory capital calculated by these alternative methods. This could affect Solvency II’s international credibility.

• Requirement to use an internal model: The exclusion of geographical diversification from the standard formula requires all undertakings with significant international exposure to develop internal models, as their capital requirements will otherwise be excessive. However, there is no certainty that their internal models will obtain supervisory approval.

• Complexity: Complexity is not a “deal breaker”: it can be addressed by considering different approaches to those used in QIS4. An undertaking whose business is limited to a single country is not affected by reporting requirements capturing information about geographical diversification. Such an undertaking is not affected by the reporting requirements’ supposed complexity.

• Providing choice: If not compulsory then the application of geographical diversification should be made optional. Undertakings could then make their own decisions on whether to accept the additional “complexity” in return for obtaining the benefits of geographical diversification.

Appendix 1 contains a detailed assessment of Solvency II and geographical diversification.

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Lloyd’s proposed approach to geographical diversification Lloyd’s considers that geographical diversification calculations in the non-life underwriting module of the standard formula should follow those in the QIS4 technical specification, with the following modifications: • Their use of geographical diversification should be at least optional. In other words,

undertakings could decide whether to include provision for geographical diversification in their non-life underwriting module calculation. This would entail allocating premiums and provisions between geographical areas. An undertaking not proposing to claim geographical diversification benefits would not need to make the allocation.

• The 54 geographical areas used in QIS4 would be replaced by 17 regions. These are based on the UN geo-scheme1

The 17 regions proposed are:

, with separate provision for the US, based on NAIC zones. This breakdown is simpler than the QIS4 system, makes use of pre-existing categorisations, and better reflects sources of premium income – and therefore of insured values at risk – and the global pattern of exposures.

Eastern Europe Northern Europe Southern Europe

Western Europe Central America & Caribbean South America

North America excl. USA NE USA SE USA

Midwest USA Western USA East Asia

Central & West Asia South & SE Asia Oceania

Northern Africa Southern Africa

The calculation would otherwise follow the QIS4 specification. In other words:

• A Herfindahl index for premiums and claims would be calculated for each line of business.

• There would be a maximum diversification effect of 25%.

• An aggregate materiality threshold of 5% would apply to allow any geographical diversification.

Further details are set out in appendix 2. Conclusion Lloyd’s considers that its proposal is in line with Solvency II’s fundamental principle of an economic approach to capital setting, while at the same time addressing the issues of complexity and materiality identified by CEIOPS. It therefore believes that it represents a substantial improvement over suggestions that geographical diversification be withdrawn from the standard formula entirely.

January 2010

1 A division of the globe into “macro-geographical regions, developed by the UN Statistics Division. http://millenniumindicators.un.org/unsd/methods/m49/m49regin.htm. See appendix 2 for further details.

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Appendix 1 Geographical diversification: a detailed assessment

Geographical diversification and planning for Solvency II Solvency II is based on an economic approach to the setting of capital, an approach that requires recognition of diversification. The Commission’s Impact Assessment Report ([SEC 2007] 871) says (page 104): “An economic risk based approach also takes account of the specific risk profile of the insurance undertaking and the impact of risk mitigation techniques, as well as size and diversification effects.” This reflects international thinking on insurer capital requirements. The IAIS Common Structure for the Assessment of Insurer Solvency (February 2007) says (para 79): “The IAIS would thus suggest that an overall capital requirement should take into account diversification between risk factors where this can be substantiated with sufficient robustness.” The European Central Bank’s report “The Potential Impact of Solvency II on Financial Stability” (July 2007) gave further details of the significance of diversification to insurance: “Risk diversification and risk mitigation are the core economic functions of insurance companies, and contribute to lowering the overall level of risk in the economy. Risk diversification in the insurance sector generally refers to diversification within types of risk, across types of risk (e.g. insurance versus credit risk), across locations and across entities. In pooling risks of many policyholders and ensuring that uncorrelated – idiosyncratic – risks are diversified, the insurance industry allows some risks to be eliminated.”2

As this extract points out, an important form of diversification for insurers is diversification across locations, i.e. geographical diversification. The KPMG study of insurance prudential supervision, prepared for the European Commission in May 2002, commented (para 3.4.16): “International companies experience risk reduction due to geographical diversification of risks.” Geographical diversification and the Solvency II Directive Consequently, the Solvency II Directive makes explicit provision for diversification. Preamble 64 says: “…economic capital should be calculated on the basis of the true risk profile of those undertakings, taking account of the impact of possible risk-mitigation techniques, as well as diversification effects.” Article 104 deals with the design of the basic Solvency Capital Requirement. Sub-article 4 includes the following: 2 ECB July 2007 Report page 10

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“Where appropriate, diversification effects shall be taken into account in the design of each risk module.” Geographical diversification as an essential element in Solvency II

• Solvency II is based on an economic risk-based approach;

• An economic risk-based approach must make provision for the impact of diversification effects; and

• An important type of diversification for insurers is diversification by location, i.e. geographical diversification.

The Solvency II Directive’s explicit references to diversification are consistent with its underlying principles: if it made no provision for diversification it would not be adopting an economic approach to capital setting. Geographical diversification and QIS4 When Solvency II was drafted and agreed, policymakers and stakeholders alike expected it to make full provision for geographical diversification. Consequently, QIS4 allowed for geographical diversification in the non-life premium and reserve risk module. As CEA’s January 2009 QIS4 feedback to the European Commission recognised: “The introduction of geographical diversification into QIS4 was a valuable improvement in the SCR standard formula compared to QIS3 - it enabled a much more realistic recognition of insurers' risk profiles.” CEIOPS’ Report on QIS4 recognised that “This introduction of the possibility of taking into account geographical diversification has been generally well received by participating underwriters…”3

The Report said that the impact was particularly significant for solo undertakings such as reinsurers and transport specialists and when the standard formula was applied at group level. It also noted that in mass-market lines of business geographical diversification was significant to only a few undertakings, since most undertakings (other than reinsurers) write such business locally.

The Report noted that negative comments were received on the practicability of the approach adopted in QIS4. The approach adopted required premiums and provisions to be allocated to 54 different geographical areas, which were a mixture of individual countries (in the EEA and South America) and aggregated regions. This was subject to a minimum threshold of 5%. The perceived complexity of the QIS4 approach appears to have influenced some supervisors into concluding that, although geographical diversification should be recognised, this should be via undertaking-specific data or the use of internal models. QIS4 demonstrated that geographical diversification was significant to some solo undertakings but not to others. Its significance was greatest for insurers engaged in international business, such as reinsurance or transport insurance. 3 CEIOPS Report on QIS4 page 214. It also noted feedback that regional diversification was too refined for the standard formula.

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The approach used in QIS4 – with 54 different geographical areas that did not match up to underlying risk exposures – was complex. However the need to split premium income geographically arises only for undertakings writing international business. Undertakings limited to writing business in a single country do not have non-local premium to report, so are unaffected by complexity. Complexity is an issue only for undertakings with an international profile, who are also the most likely to support recognition of geographical diversification. CEIOPS and Geographical diversification CEIOPS’ views on geographical diversification are set out in four documents:

• CP 48 “Standard formula: non-life underwriting risk” (July 2009).

• Resolution on comments received on CP 48 (November 2009).

• Final advice on non-life underwriting risk (November 2009).

• CP 71 “Calibration of non-life underwriting risk” (November 2009). Its position is that it recognises that recognition of geographical diversification improves the standard formula by making it more risk sensitive, but considers that the additional complexity it brings at solo level makes it unattractive. Its opinion is influenced by what it views as the limited materiality of the reduction that undertakings can obtain through the recognition of geographical diversification. CP 48 “Standard formula: non-underwriting risk” The paper says: “CEIOPS has decided not to apply geographical diversification for non-life business across the globe. While this change is crucial for reinsurers and cross-border groups, it was seen as introducing unnecessary complexity at solo level, in view of the materiality of the reduction in capital requirement they could obtain from the calculation.” Annex C is an impact assessment of geographical diversification. It looks at three options:

• Option 1 – No recognition of geographical diversification.

• Option 2 – Recognition of geographical diversification as per QIS4 approach.

• Option 3 – Recognition of geographical diversification using a more granular approach than QIS4.

It recognises that “Recognition of geographical diversification is justified as it translates the economic reality and the precise risk exposure of the undertaking”. It also confirms that recognising geographical diversification would put Solvency II in line with international approaches to insurance capital supervision: “As to the compatibility of the prudential regime for EU insurers with the work of the IAIS and IAA, the thinking shows the preference of these international associations to recognise geographical diversification, which in theory seems appropriate and justified.”

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Nevertheless, it concludes by recommending option 1. It accepts that this means there would be no beneficial effect of diversification on the capital requirements of undertakings that are geographically diversified. However, it does not see this as entirely a bad thing: it says that this will push undertakings towards the development of internal models that give proper recognition of diversification; that higher capital requirements would offer enhanced protection to policyholders and that smaller firms would see their competitive disadvantage reduced compared to well-diversified larger firms. CP 48 assumes that an undertaking will calculate the SCR of a sub-module either using the standard formula calibration (calculated using the historic volatility of the whole business of an average representative undertaking) or using entity-specific parameters (or an internal model). In either case, it claims that geographical diversification will be captured, as the methodologies use the historic volatility of loss ratios and run-off ratios with reference to the whole business of either an average representative undertaking or of the individual undertaking. Resolution on comments received on CP 48 CP 48 prompted a large number of calls for the reinstatement of geographical diversification: 32 of the 42 responses received explicitly requested this. Supporters of geographical diversification include:

• the CEA (“Failing to recognise it would be a serious departure from the Framework Directive and lead to substantial additional prudence”),

• National associations such as ABI, GDV, FFSA, AMICE, Assuralia and UNESPA (“There is a strong case for recognising geographical diversification”),

• Insurers such as XL Capital, Groupama, Legal & General, RSA and Munich Re (“Geographical diversification should be recognised also in the standard formula as this is one of the main principles of insurance. Companies should not be forced to use partial internal model in order to recognise this positive feature of a balanced portfolio”) and

• Other stakeholders, including the IUA, Groupe Consultatif, KPMG and the CRA Forum, (“Not allowing for geographic diversification is not recognising one of the key principles of insurance, which is giving credits for well diversified portfolios”).

In contrast, none of the responses received explicitly supported CEIOPS’ position of entirely removing geographical diversification. CEIOPS’ response was:

“Whilst CEIOPS recognises that this would be an improvement and more risk sensitive, it is seen as introducing unnecessary complexity at solo level, in view of the materiality of the reduction in capital requirement they could obtain from the calculation. CEIOPS will consider including an average level of geographical diversification implicitly in the calibration.”

Final Advice on non-life underwriting risk CEIOPS final advice reiterated the views it stated in CP 48:

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“Geographical diversification is considered to introduce unnecessary complexity at solo level, in view of the materiality of the reduction in capital requirement undertakings could obtain from the calculation.” Lloyd’s comments on CP 48, the Resolution and the Final Advice “This change is crucial for reinsurers and cross-border groups” Non-inclusion of geographical diversification means that the standard formula is an inappropriate means of capital setting for undertakings writing international business, as it will require capital to be set at an uneconomic level. This is contrary to the intention of the Directive:

“Provision should be made to lay down a standard formula for the calculation of the Solvency Capital Requirement, to enable all insurance and reinsurance undertakings to assess their economic capital.”4

If the standard formula does not recognise a particular – and for some undertakings a significant – form of diversification, it is moving away from taking an economic approach to capital setting. “Unnecessary complexity at solo level” CEIOPS has not assessed the issue to determine whether there are alternative approaches that would be less complex. Complexity is an issue only for those undertakings who trade internationally, and who are likely to view the complexity as a reasonable trade-off for the diversification benefit they can obtain from its recognition. Many areas of the standard formula – such as the use of undertaking-specific parameters, the counterparty default risk module or the design and calibration of other modules - are complex, but this has not led to their removal from the standard formula. “The materiality of the reduction” CEIOPS views the reduction in capital requirements for solo entities from geographical diversification as immaterially small. This is inconsistent with its own conclusions from QIS4. The reduction in capital requirements was small or non-existent for many undertakings, but for some undertakings it was significant. Implicit in CEIOPS argument is that materiality of the reduction can be balanced against complexity. If materiality varies widely for different undertakings and complexity can be addressed using other approaches, balancing one against the other is hard to justify. If the application of geographical diversification were to be optional, undertakings could make their own decisions on the balance between materiality and complexity. “This may push undertakings towards the development of internal models” The standard formula should not be modified to make it less risk sensitive and economic in order to push some undertakings into developing internal models. As noted above, the standard formula is supposed to cater for all undertakings. 4 Solvency II Directive, preamble 65

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Implicit in CEIOPS reasoning is the view that larger undertakings and groups most likely to benefit from geographical diversification can use internal models to provide for geographical diversification. In fact, non-recognition of geographical diversification in the standard formula effectively forces an undertaking with significant international exposure to develop an internal model, irrespective of the undertaking’s size or profile. To avoid the imposition of an uneconomic capital requirement, an undertaking’s internal model must obtain supervisory approval before October 2012. However many detailed regulatory requirements for internal models are still being developed and an undertaking faces considerable uncertainty about whether its internal model will be approved. A decision not to approve an internal model will have severe consequences for a firm’s competitiveness. Furthermore, the undertaking is likely to be required to explain and justify differences between its capital requirements as calculated under the standard formula and under an internal model. An excessive standard formula figure is likely to put upward pressure on its internal model requirement. “Enhanced protection of the policyholder” Asserting that higher capital requirements offer enhanced protection to policyholders is an argument for capital increases across the board, not just for geographically-diversified undertakings. It is, in any case, an extremely crude approach, contrary to the whole basis of Solvency II. Consequences such as higher premiums and loss of competition may outweigh the supposed gains in protection. “Smaller firms will in general see their competitive disadvantage reduced compared to well diversified larger firms” It is clearly wrong to penalise larger firms to reduce a perceived competitive disadvantage for smaller undertakings. Under Solvency II, capital requirements should match undertakings’ risk profiles, including diversification effects. Solvency II already provides for smaller firms through the principle of proportionality. “Both the standard calculation of the SCR and its calculation using entity-specific parameters already capture the geographical diversification” See comments below on inclusion of geographical diversification in the calibration of non-life underwriting risk. If calibration is based on an average undertaking significant weight is given to the experience of small and medium-sized undertakings with little or no geographical diversification, making the approach inappropriate for more international undertakings. Use of entity-specific parameters will be subject to such strict supervisory criteria (see CP 75) that it will be very difficult for any undertaking to do so. “An improvement and more risk sensitive” CEIOPS continues to recognise that geographical diversification would improve the non-life module of the standard formula. It is disappointing that, notwithstanding the substantial weight of responses calling for geographical diversification’s reinstatement, CEIOPS did not make any amendment before providing final advice to the Commission.

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CP 71 “Calibration of the non-life underwriting risk” CP 71 allows for an average level of geographical diversification in the calibration. Premium and reserving calibration is based on data from six EU member states and tries to reflect the profile of a representative undertaking for the six states. The paper says:

“An average level of geographical diversification is implicitly allowed for in the calibration because the volatility of the undertaking’s time series reflects the geographical diversification of their business.”

Lloyd’s comments on CP 71 The calibration is flawed because it is based on very limited data. This is recognised by CEIOPS, which accepts that “for some classes (e.g. reinsurance), the data available to carry out the analysis was fairly sparse” and that time and data was lacking to do a complete study. Using data over just 10 years would, following CEIOPS’ own approach, only warrant a credibility factor of between 50% and 60% (see CP 75).

Implicit inclusion in calibration means that, instead of geographical diversification reflecting undertakings’ actual risk profiles, all undertakings using the standard formula get the same (small) level of diversification benefit. For undertakings writing business internationally, this level is significantly less than they would obtain if geographical diversification were properly calculated. On the other hand, undertakings whose business is not geographically diversified obtain diversification benefits, so their capital requirements are lower than their actual risk profiles would suggest. Conclusions CEIOPS itself provides many good arguments for including geographical diversification in the non-life module of the standard formula: • “…this change is crucial for reinsurers and cross-border groups” (Final Advice 3.75).

• “Recognition of geographical diversification is justified as it translates the economic reality and the precise risk exposure of the undertaking” (Final Advice C.28).

• “As to the compatibility of the prudential regime for EU insurers with the work of the IAIS and IAA, the thinking shows the preference of these international associations to recognise geographical diversification” (Final Advice C.29).

• “CEIOPS recognises that this would be an improvement and more risk sensitive” (Resolution, 3).

An important consideration is Solvency II’s credibility. If an undertaking with international exposure calculates its capital requirements under the standard formula without geographical diversification and under an internal model with geographical diversification there will be a significant difference between the two figures. Critics of Solvency II could latch on to this difference to suggest that internal models are simply a means of obtaining a lower capital figure and that an undertaking using an internal model was under-capitalised in comparison with those using the “objective” standard formula. This could lead to a loss of credibility for Solvency II. Lloyd’s therefore considers it essential that the non-life module of Solvency II’s standard formula includes provision for geographical diversification.

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Appendix 2

Lloyd’s Proposed Treatment of Geographical Diversification Introduction Where required, geographical diversification calculations will be carried out in the same way as outlined in the QIS4 technical specification with modifications to the underlying geographical regions. Use of the calculations would be optional. The maximum diversification effect will remain 25%, as allowed in QIS4. Specification The Herfindahl index for premiums and reserves for each line of business (LoB) is calculated as follows:

2

),,(),,(

2,,(),,(

,

)(

)(

+

+=

∑

∑

jlobjreslobjprem

jlobjreslobjprem

lobpr

VV

VVDIV

Where the sum of premiums and reserves is taken over the non life business of the considered entity and j is the index for the geographical areas. The overall volume measure V is determined as follows:

∑=Lob

lobVV

Where, for each individual line of business LoB, Vlob is the geographically diversified volume measure for premium and reserve risk as defined hereunder: Vlob= ( V(prem,lob) + V(res, lob)) * (0.75+0.25*DIVpr,lob) Where, for each individual line of business LoB, V(prem,lob) and V(res, lob) are the volume measures for premium and reserve risk as defined hereunder.

∑=j

lobjpremlobprem VV ),,(),( and ∑=j

lobjreslobres VV ),,(),(

Regional breakdown We consider that the 54 regions contained in QIS4 can be improved or refined. A revised approach could be based on the United Nations geo-scheme, developed by the UN Statistics Division for statistical purposes, which divides the world into “macro-geographical

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regions”.The UN confirms that these geographical divisions do not imply any assumptions regarding political or other affiliations of countries or territories. The geo-scheme consists of 22 sub-regions. From an insurance point of view it is possible to aggregate these further, to take account of the size of national markets. In addition, we believe that it is necessary to take special account of the US, in view of the size of the US non-life market. The US can be divided into regions using the NAIC’s regional split. The regional split that Lloyd’s recommends is as follows: 1. Central & Western Asia (UN geo-scheme Central Asia and Western Asia, less Cyprus) Armenia Azerbaijan Bahrain Georgia Iraq Israel Jordan Kazakhstan Kuwait Kyrgyzstan Lebanon Oman Palestinian Territories Qatar Saudi Arabia Syrian Arab Republic Tajikistan Turkey Turkmenistan United Arab Emirates Uzbekistan Yemen 2. Eastern Asia (UN geo-scheme Eastern Asia) China Hong Kong Japan Macao Mongolia North Korea South Korea Taiwan 3. South and South-Eastern Asia (UN geo-scheme Southern Asia and South-Eastern Asia) Afghanistan Bangladesh Bhutan Brunei Darussalam Cambodia India Indonesia Iran Lao PDR Malaysia Maldives Myanmar Nepal Pakistan Philippines Singapore Sri Lanka Thailand Timor-Leste Vietnam 4. Oceania (UN geo-scheme Oceania region) American Samoa Australia Cook Islands Fiji French Polynesia Guam Kiribati Marshall Islands Micronesia Nauru New Caledonia New Zealand Niue Norfolk Island N. Mariana Islands Palau Papua New Guinea Pitcairn Samoa Solomon Islands Tokelau Tonga Tuvalu Vanuatu Wallis & Futuna Islands

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5. Northern Africa (UN geo-scheme Northern Africa and Western Africa plus Cameroon, Central African Republic and Chad) Algeria Benin Burkina Faso Cameroon Cape Verde Central African Rep. Chad Cote d’Ivoire Egypt Gambia Ghana Guinea Guinea-Bissau Liberia Libya Mali Mauritania Morocco Niger Nigeria Saint Helena Senegal Sierra Leone Sudan Togo Tunisia Western Sahara 6. Southern Africa (UN geo-scheme Southern Africa, Eastern Africa and Middle Africa other than countries specified under Northern Africa) Angola Botswana Burundi Comoros Dem Rep of Congo Djibouti Equatorial Guinea Eritrea Ethiopia Gabon Kenya Lesotho Madagascar Malawi Mauritius Mayotte Mozambique Namibia Rep of the Congo Reunion Rwanda Sao Tome & Principe Seychelles Somalia South Africa Swaziland Uganda United Rep. of Tanzania Zambia Zimbabwe 7. Eastern Europe (UN geo-scheme Eastern Europe) Belarus Bulgaria Czech Republic Hungary Moldova Poland Romania Russian Federation Slovakia Ukraine 8. Northern Europe (UN geo-scheme Northern Europe) Aland Islands Channel Islands Denmark Estonia Faeroe Islands Finland Guernsey Iceland Republic of Ireland Isle of Man Jersey Latvia Lithuania Norway Svalbard, Jan Mayen Sweden United Kingdom 9. Southern Europe (UN geo-scheme Southern Europe, plus Cyprus) Albania Andorra Bosnia Croatia Cyprus Gibraltar Greece Italy Macedonia Malta Montenegro Portugal San Marino Serbia Slovenia Spain Vatican City

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10. Western Europe (UN geo-scheme Western Europe) Austria Belgium France Germany Liechtenstein Luxembourg Monaco Netherlands Switzerland 11. Northern America excluding the USA (UN geo-scheme Northern America, less the USA) Bermuda Canada Greenland St Pierre & Miquelon 12. Caribbean & Central America (UN geo-scheme Caribbean and Central America) Anguilla Antigua & Barbuda Aruba Bahamas Barbados Belize British Virgin Islands Cayman Islands Costa Rica Cuba Dominica Dominican Republic El Salvador Grenada Guadeloupe Guatemala Haiti Honduras Jamaica Martinique Mexico Montserrat Netherlands Antilles Nicaragua Panama Puerto Rico St-Barthelemy St Kitts & Nevis St Lucia St Martin St Vincent Trinidad & Tobago Turks & Caicos Is’ds US Virgin Islands 13. South America (UN geo-scheme South America) Argentina Bolivia Brazil Chile Colombia Ecuador Falkland Islands French Guiana Guyana Paraguay Peru Suriname Uruguay Venezuela 14. North-east US (NAIC North-eastern zone) Connecticut Delaware District of Columbia Maine Maryland Massachusetts New Hampshire New Jersey New York Pennsylvania Rhode Island Vermont 15. South-east US (NAIC South-eastern zone, less US Virgin Islands) Alabama Arkansas Florida Georgia Kentucky Louisiana Mississippi North Carolina Puerto Rico South Carolina Tennessee Virginia W. Virginia 16. Mid-west US (NAIC Midwestern zone) Illinois Indiana Iowa Kansas Michigan Minnesota Missouri Nebraska North Dakota Ohio Oklahoma South Dakota Wisconsin

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17. Western US (NAIC Western zone, less American Samoa and Guam) Alaska Arizona California Colorado Hawaii Idaho Montana Nevada New Mexico Oregon Texas Utah Washington Wyoming The suggested regional split is indicated on the attached maps. Regional non-life insurance markets’ relative sizes are indicated below. This shows the regions more likely to be significant sources of business to EU insurers and reinsurers transacting business globally. Regions are not intended to be of broadly equal size, but to be sufficiently large to justify their separate treatment. It would be possible to suggest further aggregation or division, if considered more satisfactory. For example, it would be possible to recognise global policies – contracts covering risks in more than one country – as a separate region.

2008 Non-life premium income (Source: Sigma 3/2009)

USD bn

Central & West Asia 25.3 Eastern Asia 192.5 South & South –eastern Asia 28.0 Oceania 34.6 Northern Africa 6.2 Southern Africa 10.5 Eastern Europe 69.4 Northern Europe 157.4 Southern Europe 115.5 Western Europe 355.7 Northern America (excl. USA) 57.7 Caribbean & Central America 14.1 South America 51.8 North-east US 165.3 South-east US 165.3 Mid-west US 165.3 Western US 165.3 Note: figures for US are approximations only, derived by dividing total US non-life premiums of USD 661.2bn between the four regions.

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Geographical diversification: proposed regional split

E. Asia

S & SE. Asia

C & W Asia

Oceania

N. Africa

S. Africa

E. Europe

S. Europe

W. Europe

N. Europe

N. America

US (see separate map)

Caribbean & C. America

S. America

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Geographical diversification: regional split (US)

Western US

Mid- west US North- east US

South - east US